As China’s stock market soared after the government outlined its economic stimulus package, hedge funds and strategists suddenly turned to what would have been considered one of the most contrarian trades of recent times. The CSI 300, a stock index traded in Shanghai and Shenzhen, rose more than 15% last week, its best week since 2008. Earlier this year, the CSI300 fell to a six-year low. “There is no question that the stock prices of blue-chip companies will bottom out much earlier than the final index bottom,” a team led by JPMorgan’s chief China equity strategist Wendy Liu said in a note on Friday. . Investment strategists are recommending several oversold stocks in China until government measures take effect. JPMorgan highlighted three stocks traded in Shanghai, including Shanghai-listed beer company Qingdao, US-listed retailer Miniso, and machinery company Zhejiang Dingli, as stocks that will rise in the short term. “Our focus here and over the next few quarters is on finding high-quality companies trading at low-demand valuations,” the report said. Gaining exposure That newfound enthusiasm was contagious. “We believe this is a good time to take back China exposure,” Rupal Agarwal, director and Asia volume strategist at Bernstein, said in a note Friday. “I would like to wait for a clear turn in real estate and consumer sentiment and for profit growth to become even more positive over the medium term,” he said. “Right now, we believe tactically the rally has legs.” Two stocks that Bernstein analysts believe have triple-digit six-month earnings momentum are U.S. They are Tal Education, a listed after-school operator, and Ceres, a Shanghai-listed company that manufactures Aito EV brand vehicles developed with Huawei. The stock appeared on our search for companies that will benefit from domestic demand, but only if they are trading at least 20% below the peak level reached in May and have a positive 12-month earnings outlook. It had been. U.S. hedge fund billionaire David Tepper told CNBC’s “Squawk Box” Thursday that he has bought more Chinese stocks in response to changes in China policy. Asked about the potential impact of U.S. tariffs that former President Donald Trump has promised to extend if elected in November, Tepper said he was not concerned. Instead, Tepper highlighted how the Chinese government’s latest policy focuses on “internal stimulus” and said Chinese stocks are cheaper than U.S. stocks. Trade here,” Tepper said. That’s versus “S&P stocks above $20.” Changing Sentiment Sentiment towards Chinese stocks changed after People’s Bank of China Governor Ban Gongsheng announced interest rate cuts in an unusual press conference with securities regulators on Tuesday. Chinese President Xi Jinping then led a high-level meeting on Thursday to confirm these policy moves. The leaders also called for stemming the real estate recession and strengthening fiscal and monetary policies. Short-term traders have been buying Chinese stocks for eight straight days in response to a brighter outlook, Scott Rabner, managing director of global markets and tactical expert at Goldman Sachs, said in a trading note Thursday. He said there was. “Re-emerging markets quickly became a popular trade after the U.S. election in November and December,” Rabner said, adding, “The number of Zoom calls I’ve made to China in the last 48 hours is 2024. “That was more than the entire period of 2018.” According to data collected, global mutual funds allocated 5.1% of their portfolios to Chinese stocks at the end of August, near the lowest level in a decade, while hedge funds allocated 5.1% of their portfolios to Chinese stocks for the first time in about five years. This is a low level of less than 7%. Written by Goldman. Hedge fund allocations rose to 7.3% on Tuesday, the largest single-day purchase by a hedge fund since March 2021, Rabner said. The renewed interest in Chinese stocks comes after financial institutions cut their exposure to Chinese stocks due to slowing growth prospects, mounting debt problems and an alarming downturn in the real estate market. Some foreign investors are also shunning concerns about U.S.-China tensions. To be sure, few are betting on an unhindered, across-the-board rally from here, especially since China has yet to formally decide on the details of its fiscal policy. Chinese companies mainly do business in the United States, Hong Kong and the mainland. Retail investors account for the majority of trading activity in mainland Chinese stocks, also known as A-shares. “Trade sentiment has always been influenced by policy and has fluctuated greatly,” Beijing-based financial blogger Li Dongfang said in Chinese, as translated by CNBC. He has bought some A-shares and exchange-traded funds traded in Hong Kong, and is optimistic about alcohol, new energy vehicles and solar power stocks. “The A-share market has always had a market bottom after the policy,” Lee said, adding that it will take time for the market to stabilize after the recent rally following previous declines. The outlook is that Li said the PBOC’s policy announcements will support further capital inflows into the stock market, allow ETFs to be used as collateral for institutional loans, and allow large shareholders to borrow from banks for share buybacks. Ta. JPMorgan said: “The continued short squeeze likely accelerated (Friday’s) strong market performance, with real estate, consumer staples and consumer goods outperforming in the Hong Kong market, and real estate, consumer staples outperforming in the A-share market. “Lifestyle staples and finance outperformed.” Stock exchanges in mainland China will be closed for public holidays from October 1 to October 7 to commemorate the 75th anniversary of the founding of the People’s Republic of China this year. —CNBC’s Michael Bloom contributed to this report.
